Tom Gentile: Well, Kristine, you raised very good points. And it’s a situation that exists both on the commercial side and on the defense side with the large primes is the impact of inflation especially when you have a fixed-price contract has an impact. And as I said, it’s a broader industry issue in terms of the fact that there’s a huge demand out there right now as their traffic recovers, but there’s all these supply constraints and there’s pressures on the supply chain in terms of inflation in material and labor, logistics and utilities, new build processes, fluctuating schedules. And so I would say the — the issue is we are under contract, and we are going to meet our contractual commitments to our customers. But really, the OEMs and the US government from a defense standpoint, do have to recognize the environment has changed and it’s a highly inflationary environment. And these are very important conversations that we have to have with our customers.
Kristine Liwag: Thanks guys. And in terms of getting some of that pricing alleviation, I mean we’re hearing from your peers they’re getting better pricing and actuation or even the joint engine supply chain. Is there something different specifically with your long-term agreement to make it more difficult for you to get that pricing increase?
Tom Gentile: Well, our long-term agreements are typical, I would say, the industry, their requirements contracts. We are fortunate that we have these contracts that our life of program, usually sole source. And these are extremely unique contracts and they’re on all the best programs. I mean if you look at the 737, we make 70% of the structure on the 37 for Boeing, including the entire fuselage. On the 320, we make about 60% of the structure for the wing with Airbus. We have a huge work package on the A350 with the center fuselage and the fixed leading edge. And on the 220, we make three sections of the center fuselage, the entire wing, including all the systems, and we make the pile-on. So, when you think about the industry and narrow-body aircraft being so important, we have the biggest work packages by far on the narrow-body programs.
It’s 85% of our backlog. So we feel very fortunate that we have those positions on those contracts. Yes, so that there has been a big change in the environment with inflation both in material and labor, utilities and logistics, different build processes, different rates that are still lower than we were overall back in 2019. And so those are realities and the OEMs are fully aware of it. And as I said, these are discussions that we need to be having with the OEMs at this time.
Kristine Liwag: Thank you very much.
Operator: Our next question comes from Michael Ciarmoli of Truist Securities. Michael, please go ahead.
Michael Ciarmoli: Hey, good morning guys. Thanks for the question. I guess just staying on Kristine’s point, with these contracts? I mean you’re boasting you’re on the best programs, but seemingly, you’re just not getting compensated or paid for the value you’re providing. And I guess, you’re saying some of these things have to be addressed. How receptive are Boeing and Airbus, their sense of urgency? I mean do you think you can get something changed here in the shorter term to capture some pricing. And then I guess maybe even you still have, I guess, the price step-downs as you go up in volumes. I mean, is that something that you’re looking very closely at. I think if you can remind us, I think 42 was sort of the optimal rate for the 737, but once you go above that, you’re going to start getting price step down.
It just seems like you’re getting squeezed from all sides here. And maybe there should be more urgency and I get it running fast to stay still, but that doesn’t really sound like a good proposition for shareholders.
Tom Gentile: It’s a challenging environment, and I think we all recognize that. It’s much more inflationary in material. And with these new labor contracts, now you see that in labor as well. And as I’ve said, it’s an industry-wide problem because demand is clearly there. The orders are coming in, production rates are going up, but all suppliers are facing challenges with these higher level of costs. And so it’s an important systemic issue that the OEMs do need to address. And it’s important that we have these conversations with them. And I can’t put any sort of timeframe on it. Discussions like these are always difficult and challenging. But it’s something that we are prepared to have for the reasons that you just outlined.
Mark Suchinski: Yes, Michael, I would just add to just try to be clear, there is a sense of urgency by the management team here, okay? We hear you. We understand. We’ve got a lot of work to do on this end.
Michael Ciarmoli: Got it. All right. Thanks.
Tom Gentile: Thank you.
Operator: Our next question comes from Ron Epstein of Bank of America. Ron, please go ahead.
Ron Epstein: Hey good afternoon. Morning guys.
Tom Gentile: Good morning Ron.
